McClendon, Partnership File to Raise Up to $2 Billion

Former Chesapeake Energy CEO Wants to Buy U.S. Oil, Gas Prospects

By

Daniel Gilbert and

Robbie Whelan

Updated Dec. 13, 2013 8:08 pm ET

A partnership linked to
Aubrey McClendon,
the former chief executive of
Chesapeake Energy Corp.
, filed for a public offering to raise up to $2 billion to buy and drill oil and gas prospects in the U.S.

American Energy Capital Partners LP is proposing to sell 100 million units for $20 each, according to a registration statement filed late Friday with the Securities and Exchange Commission.

The partnership's operations will be managed by AECP Management LLC, which Mr. McClendon founded in July, according to the filing. He was chief executive of natural-gas powerhouse Chesapeake until earlier this year.

Mr. McClendon is now the chief executive of closely held American Energy Partners LP, which said in October it had raised $1.7 billion in equity and debt. The company has been actively acquiring oil and gas properties in Ohio's Utica Shale.

A spokesman for Mr. McClendon declined to comment.

American Energy Capital Partners is sponsored by a vehicle controlled by two-real estate investors,
Nicholas S. Schorsch
and
William M. Kahane.
It is their first foray into oil and gas.

Both men are executives at
American Realty Capital Properties,
Inc., a $2.4 billion real-estate investment trust, of which Mr. Schorsch is chairman and CEO. Through his American Realty Capital family of companies, Mr. Schorsch controls nine nontraded REITs and a business development company.

This year, Mr. Schorsch has been on a fundraising tear, raising more than $7.3 billion through the end of November using a vast network of broker-dealers who sell shares of his nontraded REITs. Those companies, like REITs traded on public stock exchanges, buy hotels, offices, and retail properties and use the proceeds from monthly lease payments to pay shareholders fat dividends.

Mr. Schorsch said his fundraising network, including his wholesale broker-dealer, Realty Capital Securities LLC, will provide a low-cost way to raise capital for the oil and gas business. "It's a good time for the retail investor to get involved," he said.

Mr. McClendon's "skills and capabilities as an oil and gas man are extraordinary," Mr. Schorsch added.

The partnership aims to sell its holdings within seven years after the offering closes, according to its registration statement. Investors must purchase a minimum of 250 units.

American Energy Capital also disclosed a range of potential conflicts of interest. The sponsors can favor their own interests over those of investors. In addition, the partnership may invest in oil and gas properties where Mr. McClendon's firm has interests. Mr. McClendon's management group won't owe a fiduciary duty to the partnership, according to its registration statement.

Among Mr. McClendon's duties will be acquiring oil and gas prospects for the partnership, overseeing drilling and financing for the operations. His firm "has a large and growing staff of over 125," the filing said.

Mr. McClendon, 54 years old, co-founded Chesapeake in 1989 and helped build it into the nation's second-biggest natural-gas producer after Exxon Mobil Corp.

Under Mr. McClendon, Chesapeake acquired drilling rights to more than a million acres in the Utica. Mr. McClendon has touted the Utica as the "biggest thing economically to hit Ohio, since maybe the plow." Skeptics say the Utica's prospects remain uncertain.

Mr. McClendon left Chesapeake earlier this year under pressure from the company's biggest shareholders after clashing over his aggressive capital spending, which often exceeded the company's cash flow by billions of dollars a year.

Chesapeake has since been cutting costs after its years of liberal spending, but the natural-gas company's newfound thrift is raising questions about its growth prospects.

Its Chief Executive
Doug Lawler,
who took the reins in June, has said production would rise next year, but hasn't said if that increase would be absolute, or after accounting for sales of oil and gas wells.

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